One Year Later: How Demonetization Has Impacted India
Thursday, October 19, 2017
Posted by Manish Patel to Payments and Industry Trends, Retail Payments
Share this:
This month marks the first anniversary of demonetization in India, and it has undoubtedly changed the country forever. When I visit India, I increasingly see micro-transactions conducted via mobile phones. Cash is still used, but I see less and less of it with each visit. We are in the middle of a true paradigm shift – and India is poised to become a global leader in new types of payment acceptance.
Mixed results following demonetization
From a macroeconomic perspective, reports have indicated that the early stages of demonetization have produced mixed results:
- 90% of cash that was in circulation has been returned to the banking system. This (cash) can be loaned out and increase the GDP to burgeoning entrepreneurs.
- More taxes are collected due to higher bank balances, which can lead to a decrease in the tax rate, spurring economic spending.
- Farming and automotive experienced adverse impacts due to a lack of available cash.
Impact of demonetization on payments
Now focusing on payments, the data available supports what I have seen firsthand. The government had set an ambitious target of 25 billion cashless transactions in 2017. While this may not be reached, digital payment transactions are up 53% in terms of value, and up 33% in terms of volume, with volume growing at a rate of 7% each month.
Reserve Bank of India statistics show that the growth in digital payments was uneven. UPI (Unified Payments Interface) grew at a compounded monthly rate of over 100% in the first 6 months following demonetization. Comparing monthly volume in July 2016 and 2017, mobile banking volumes grew at a CAGR of 75%, and IMPS (Immediate Mobile Payments System) grew at 115%. Clearly staggering growth in volume and rapid adoption of these new digital payments.
Card-based payments, by comparison, grew meagerly at less than 5% in the first 6 months. Admittedly, the card payments base dwarfs that of new payment types such as UPI and IMPS, but this gives us a glimpse of what the future may hold.
New payment infrastructure and the network effect
The IMPS and the UPI protocols support instant payments using mobile phones. The early results indicate that the regulation was a catalyst for significant growth of non-traditional digital payments. New payment applications, such as the Bharat Interface for Money (BHIM), have been built on this new infrastructure.
A significant barrier to overcome for new payment types is the lack of a network of consumers, banks, intermediaries and retailers needed to use and accept the new method. However, BHIM has been designed to be different and overcome these network challenges. It eliminates the need for bank applications and intermediary transfers, while allowing anyone with a bank account and smartphone to make a payment. BHIM also allows users with Aadhaar cards to make payments to others with an Aadhaar number. This effectively opens the marketplace to millions of new Aadhaar-enabled bank accounts. Out on the streets, I have witnessed more and more merchants accepting this method of payment. My eyes are not lying – and the network of retailers needed for a new payment type to be successful is growing.
The future of payments in India
India, much like the rest of the world, is facing several ‘mega trends’ in the payments market. Those that will have the most significant impact in India include the shift from customer experience to engagement, trust in digital transactions and new technologies, as well as the longitudinal trend of the blurred lines between commerce and payments.
I will explore these trends in a future post and outline what they mean for India, but I will close by posing a final question: Has demonetization and the new digital infrastructure positioned India as a leader in digital payments?
Given the growing demand and sheer volume of people using these new digital platforms within just one year, it would not surprise me in the least if India emerged as the benchmark for digital payments.
Related Blog Posts
Slam the Brakes on Gas Pump Fraud and Rental Car Scams This Memorial Day Weekend
The process of secretly reading data off credit and debit cards (aka skimming) could be netting criminals as much as $3 billion a year in the US, according to Bankinfosecurity.com.
As we look forward to Memorial Day weekend here in the U.S., travelers are getting ready for road trips to their favorite destinations. Whether it’s a beach party in Miami, snorkeling in Catalina Island, or even a staycation, payments – and more specifically, payment fraud – is a huge consideration for travelers, especially during the holiday weekend. I sat down with one of our payments fraud experts, Seth Ruden, to talk about what travelers must look out for regarding payment fraud and how they can keep their money safe. Here’s what he told me.
Cutting the Cost and Complexity of Merchant Payments – But Not the Customer Experience
New research from ACI and Ovum, released this week, highlights that many merchants in 2018 are investing in creating operational efficiencies in their payments systems. But the question is, as they strive to simplify systems and cut costs, will customer experience suffer?
Despite the Hype, Machine Learning, Models, Behavioral Profiling and the Customer Experience are Still Fundamental
Think about the last time you got a fraud decline. Where were you? In the grocery store? Buying airline tickets? On holiday? Shopping in the same place you’ve been a dozen times, but across the border? How frustrating was that, what did it do to your perspective, your mood, your confidence in your financial institution? This can be embarrassing and inconvenient, stressful and alarming for the consumer. There are few things that can be more disruptive in our day-to-day lives then the lack of access to your funds, or the care taken by your financial institution after a fraud occurs. According to ACI’s Global Consumer Fraud Survey, 20% of people may decide this is too much and move along to another financial institution.
Cross-Border eCommerce Expansion: A Fraud Perspective
For merchants that are expanding their online presence overseas, enabling the right locally-preferred alternative payment methods and connecting to local acquirers can be a critical determinant of success. But without considering fraud management strategy in tandem with payments strategy, the road to cross-border success could be a bumpy (not to mention costly) one.
The 12 Biggest Security Threats to Payments
Consumers ask a lot of you in terms of convenience, speed and, above all, security. This puts the pressure on you to offer a pain-free consumer experience that is also highly secure. And when you accept payments, you need to secure all parts of your organization. Here’s an actual example: one major breach occurred when an air conditioning vendor was hacked, allowing hackers to access the corporate network and finally the point of sale network. This highlights the importance of understanding the threat landscape we face today.
Maintain Vs. Invest: What the Digital Era Ushers in for Banks
Taking place this week in Brussels, the European Credit Research Institute (ECRI) will host a high-level debate on how policymakers can build on the process of digitalisation of banks to raise competitiveness in light of increased competition from fintech start-ups and tech giants.
Ursinus College: The Future of Campus Commerce is in the Cloud
Sixty-eight percent of schools are moving eCommerce to the cloudi. As Ellucian Live begins to descend upon San Diego this week, ACI’s Gene Scriven took a moment to chat with Ellen Curcio, Director of Student Accounts at Ursinus College, about the future of campus commerce.
Be sure to catch Ellen and Gene, as well as ACI partner and host Ellucian at the event on Wednesday, April 11, for a panel discussion on “The Future of eCommerce in the Cloud.”
Fraud Awareness Month Canada
A couple years ago, I penned a blog post to commend the Canadians on what made their culture so resilient to fraud that it developed the lowest fraud rates in the Northern Hemisphere. It got a bit of circulation and created significant positive feedback. This time, I would like to bring awareness back to Canada about a potential threat as it relates to the increasingly popular Tap payment channel.
Telcos Have a Unique Opportunity to Drive Mobile Payments
We are witnessing a significant and inevitable shift in digital payments towards mobile commerce. In the next ten years, we will see an exponential expansion in the number of devices and applications we will use to make mobile payments. You could pay for your groceries on your mobile, for delivery at home, then two days later receive a message from your fridge alerting you that the milk is running low. By the time you get back home, a new bottle of milk could be waiting for you, thanks to real-time delivery, even by a drone.
Securely Growing Online Sales in 2018: An Australian Perspective
Back in November 2017, I participated in a panel discussion for NORA (National Online Retail Association), where I looked at fraud trends in Australia over the previous holiday shopping season and made predictions to help retailers prepare. Now looking back, I am sorry to say that my predictions were painfully accurate.